employment legislation

Tax Planning

Is it not about time that the staffing industry paragons of virtue shifted their position from one of agreeing with the BBC each time they disclose abuses of tax or employment legislation and become much more proactive in regulating their own Industry?

After all Poachers make the best Gamekeepers!

A growing number of upstanding members of the flexible workforce supply chain are (and quite rightly so) willing to condemn poor practice, highlight “non-compliance” and they repeatedly assert that these revelations by the BBC and others only represent a small minority of providers who are tainting the majority. So how many swallows does it take to make a summer?

HMT and HMRC have fuelled the fire by expanding interpretation as to what constitutes tax planning (and where their view is upheld by the courts that particular planning is illegal) and what is permissible management of the existing legislation. Add to this some of the public’s growing sense of moral indignation that whether or not the legislation applies, certain arrangements are immoral and should be challenged and you are left with impending chaos. The Office of Tax Simplification (“OTS”) has made some very sensible suggestions as to how to simplify a complex and confusing system and I look forward to their further announcements. However, in the meantime the staffing industry needs to improve its transparency even further and decide where they sit with regard to sympathy with the victim.

My view is that the victim is too often the Contractor or the Freelancer and it is in their defence that transparency and a level playing field are required.

Contractors and Freelancers are the victims not the defendants

Promoter’s fees are often passed on through the hirer or other intermediary down to the worker and their pay does not increase to reflect the benefits being gained further up the chain. Arrangements which seek to avoid National Insurance or VAT seldom pass the tax benefit on to the worker, that’s not what the promoters and creators designed them to do. Also, pressure to place the worker in a trading vehicle which they do not understand or indeed require, with the tax savings disappearing into the supply chain is again outrageous. Remuneration models involving salary sacrifice (including that of some Umbrellas) also pass no benefit on to the worker. These models use legislation to maintain the same take home pay for the worker but any benefit of taxation is used to enhance or protect the margin of the provider.

There are those who cite the Treasury as the victim and but in an attempt to protect Treasury’s tax take legislation often has collateral damage. Those whom the original rules and reliefs were intended to benefit, so that they could stimulate the economy and promote growth, are caught in the cross-hairs and tarred with the same brush as abusers. Let us not forget that fees charged by Insurers and scheme promoters generate profits elsewhere in the supply chain and innocent workers incur professional fees in defending themselves (often with success). Ultimately this income stream finds its way to the Treasury’s coffers, again at the expense of the worker.

Finally, the whole supply chain for flexible workers, in common with many other supply chains, is an intricate balance of margins, risks and competitive advantages. Those compliant providers who refuse to take an aggressive stance on matters of National Insurance, NMW, and Expense claims, risk placing themselves at a competitive disadvantage to others who are more aggressive. But compliant providers should delight in the removal of non-compliant businesses; not in the sense of one less competitor on the preferred supplier list, but more as a clear indicator that the industry can self-regulate and demonstrate that the interests of the worker are important to the intermediary.

We as providers should not be jealous of a competitor who aggressively uses ( or abuses) the legislation to increase their margin, we should not be pleased when HMRC responds with more and more rules to police its own income, we should not even be morally outraged when advisers interpret legislation to the benefit of the taxpayer rather than the Government. Where we should be outraged is that time and again the loser in all of these skirmishes is the worker. Either vulnerable or skilled, the worker needs openness and transparency in the entire supply chain so that they can see for themselves who really has their interests at heart.

Paul Gough

Intouch Accounting Limited

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